Clean energy interest soars in NSW as states resist rules to prop up coal

New England renewable energy zone inundated with investor interest amid pushback to federal rules on fossil fuel generators

A New South Wales plan for Australia’s largest renewable energy zone in the state’s New England region has been overwhelmed with investor interest, with registrations coming in at more than four times the available capacity, the state government says.

The state energy minister, Matt Kean, said the New England renewable energy zone had received 80 registrations of interest from investors offering to build a total of 34GWs of new wind, solar and storage projects. The proposed 8GW-capacity zone is one of five designated clean energy areas in the state under legislation passed with multiparty support last year.

The announcement comes as some states and territories push back against suggestions from Canberra that energy ministers had all but agreed to a plan proposed by the national Energy Security Board (ESB) for new electricity market rules that could prolong the life of ageing coal-fired generators.

The federal energy and emissions reduction minister, Angus Taylor, said the ESB’s final advice on post-2025 energy market reforms would strengthen signals to encourage investment in “dispatchable generation” that could be called on at any time and help “retain existing generation” – which is mostly coal – as long as it was needed to “keep the system reliable, affordable and secure”.

He said the ESB’s recommendations were also designed to improve transmission and better enable integration of distributed energy sources, particularly rooftop solar.

Taylor’s statement, which did not mention climate change or the need to cut greenhouse gas emissions, said there had been record levels of investment in renewable energy capacity, including about 7GW last year, but little investment in dispatchable capacity.

He said one of the ESB’s most important recommendations was for further detailed work on a capacity market. In capacity markets, power generators are paid when they can guarantee they can dispatch power at specific times. Some analysts and renewable energy advocates believe they could artificially prolong the life of coal plants.

Taylor said a capacity mechanism could help keep dispatchable generators “from shutting down too early” and triggering the sort of price spike experienced when the Hazelwood coal plant closed in Victoria in 2017. But he denied it was a subsidy for old coal plants, describing the policy as “technology neutral”.

The ESB recommended it develop a detailed design of a capacity mechanism over the next 12-18 months. Taylor said energy ministers would meet next month to agree to a package of reforms, which would then be considered by national cabinet in October.

Not all jurisdictions were as strong in their support for a capacity market. The ACT’s energy and emissions reduction minister, Shane Rattenbury, said the territory was not opposed to a capacity mechanism in principle, but it must not keep coal or gas generation in the system for any longer than was required to maintain electricity system reliability.

“I will not support any plan that unnecessarily prolongs the life of expensive and polluting coal and gas power plants,” Rattenbury said. “A rapid, orderly transition to 100% renewable electricity is critical to Australia’s energy future, which is achievable in a sustainable, reliable and cost-effective way.”

A Victorian government spokesperson said the state had called for the ESB’s review as the energy system needed a clear transition plan, and agreed the body should continue work on the design of a capacity market, but “there had been no agreement on a specific model, including whether coal should be eligible for payments”.

“In assessing any model, Victoria will be guided by the need for a well-managed transition that aligns with our strong emissions reduction targets, as outlined in our climate change strategy released earlier this year,” the spokesperson said.

Kean said he was “carefully examining” the ESB advice to ensure its proposals worked alongside the state’s plans to substantially increase renewable generation and new sources of dispatchable generation, such as pumped hydro and batteries, and would not increase costs for consumers.

He said NSW looked forward to working with state and federal colleagues “over the coming months as these proposed rule changes are progressed”.

Kean said the strong response to the call for interest in the New England renewable energy zone showed investors had confidence in the state’s energy roadmap, and estimated the zone would deliver about $10.7bn in investment, 830 operational jobs and 1,250 annual construction jobs.

“The overwhelming response shows this is a once-in-a-generation opportunity to attract enormous investment into regional areas, cementing NSW’s renewable energy future,” he said. “It’s important to ensure that we have this new plant in place before our existing energy infrastructure comes to the end of its life.”

Kane Thornton, the chief executive of the Clean Energy Council, said the NSW government had shown leadership.

“What they’re doing is providing the sort of confidence that investors are calling out for,” he said. “The contrast is quite stark when we’ve got the federal government focused on mechanisms to support the extension of coal and a gas-led recovery.”

The NSW scheme involves the government awarding long-term contracts for three different types of technology: wind and solar farm; long-duration storage that can provide back-up power for eight hours or more, which is likely to come from pumped hydro or batteries: and fast-start “firming” generation that ensures grid stability in a grid that increasingly runs on variable renewables, which is likely to come from batteries or gas.

The state government said last year energy companies would bid in reverse auctions for 20-year contracts in which they compete to offer the lowest estimate for the electricity they will generate.

Clean Energy Council data suggests national investment in new large-scale solar and windfarms and the number of construction jobs in renewable energy fell dramatically in the first half of 2021 while household rooftop solar panels continued to be installed at a rapid pace.

The industry group blamed increased risk factors facing investors, including concern over delays in getting new plants connected to the electricity grid, the Morrison government’s resistance to higher and long-term climate targets and concern that a capacity market for coal would be introduced. It found only three major projects reached financial signoff in the second quarter of the year.